Indonesia's budget deficit could rise to 2.2 percent of the nation's gross domestic product (GDP) in 2015 (from a projected 1.9 percent of GDP) as the government's tax revenue may fall short of its target. Based on the revised 2015 State Budget, the government targets to collect IDR 1,489 trillion (approx. USD $110 billion) worth of tax money this year. However, as of August 2015 tax revenue collection stood at 45.8 percent of the 2015 target (or approx. IDR 593 trillion).

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Ogan Komering Ilir Pulp & Paper Mills (OKI), sebuah unit dari Sinar Mas Group, telah diberikan libur pajak oleh pemerintah Indonesia untuk periode delapan tahun. Perusahaan-perusahaan lain yang mendapatkan insentif pajak ini adalah Unilever Oleochemical Indonesia, Petrokimia Butadine Indonesia, dan Energi Sejahtera Mas. Melalui insentif-insentif ini pemerintah Indonesia bertujuan untuk membuat Indonesia lebih menarik untuk investasi jangka panjang dan kemudian mendongkrak pertumbuhan ekonomi Indonesia yang masih tetap sedang melambat.

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Today, the Indonesian government announced it extended a tax incentive for “pioneering” industries. This term refers to those industries that are considered key industries that cause a multiplier effect in the Indonesian economy (hence boosting economic) and provide employment opportunities for the local population. Examples of such industries are oil refinery, infrastructure, maritime transport, telecommunications, downstream metal production and agriculture processing. The extended incentive is effective per 16 August 2015.

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The Indonesian government targets to narrow the budget deficit to between 1.9 and 2 percent of gross domestic product (GDP) in 2016 from a projected budget deficit of 2.2 percent of GDP in 2015. Indonesian Finance Minister Bambang Brodjonegoro said on Monday (06/07) that in 2016 the government will continue to prioritize spending on infrastructure development as well as energy and food. President Joko Widodo is scheduled to officially announce the 2016 State Budget in a speech in front of parliament on 16 August 2015.

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Beberapa institusi internasional merevisi turun proyeksi mereka untuk pertumbuhan perekonomian Indonesia di 2015 karena investor asing telah kecewa dengan performa pemerintah Indonesia yang baru, sementara gambaran perekonomian global tetap jauh dari membaik. Goldman Sachs, JPMorgan Chase, Credit Suisse dan Nomura Holdings semuanya memotong proyeksi pertumbuhan perekonomian Indonesia tahun ini menjadi di bawah batasan 5% (year-on-year). Tahun lalu pertumbuhan perekonomian Indonesia menyentuh titik terendah selama lima tahun terakhir yaitu 5,02% di basis year-on-year (y/y).

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Bambang Brodjonegoro, Menteri Keuangan Indonesia, mengumumkan pada hari Rabu (27/05) bahwa Pemerintah Indonesia mungkin menaikkan batasan tidak kena pajak - yang membedakan antara penghasilan perorangan yang kena pajak dan tidak kena pajak - sebanyak hampir 50%. Meskipun tindakan ini akan mengimplikasikan pendapatan pajak yang lebih rendah untuk Pemerintah, ini akan memperkuat daya beli masyarakat Indonesia dan bisa agak mendongkrak aktivitas perekonomian di sebuah perekonomian yang dibebani oleh perlambatan pertumbuhan perekonomian sejak 2011.

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On Monday (11/05) it was reported - quoting an Indonesian tax official - that Indonesian President Joko Widodo had already ordered to cut the country’s corporate tax rate from 25 percent currently to below 18 percent in a bid to attract more investment and to make Indonesia’s business environment more competitive (for example, Singapore’s corporate tax is currently 17 percent). One day later, however, Finance Minister Bambang Brodjonegoro stated that, if the corporate tax is to be revised, it will be next year at the earliest.

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Starting from January 2015, Indonesian tobacco products are subject to an average tax rise of 8.7 percent. The excise tax on machine-rolled cigarettes becomes IDR 355 (USD $0.03) and on hand-rolled cigarettes IDR 290 (USD $0.02) per stick. The tax hike is implemented by the government in a move to increase state income through tax revenues. The higher excise tax is expected to have a minor effect on tobacco sales in Indonesia as retail prices for cigarettes remain among the lowest in the Southeast Asian region.

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Exports of Indonesian crude palm oil (CPO) and its derivatives increased 45.8 percent month-on-month (m/m) to 2.47 million metric tons in October 2014 primarily supported by the zero export tariff that was implemented by the Indonesian government per 1 October. Indonesia has a mechanism that when the average CPO price (which is calculated using international and local CPO prices) drop below USD $750 per metric ton, the export tax is scrapped. In early September, Malaysia had already implemented a zero CPO export tax.

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On 9 November 2014, Indonesia Investments released the latest edition of its newsletter. This free newsletter, which is sent to our subscribers once per week, contains the most important news stories from Indonesia that have been reported on our website in the last seven days. Most of the topics involve economic matters such as GDP growth in the third quarter of 2014, October inflation, higher subsidized fuel subsidies, Islamic finance, unemployment, the IPO of Blue Bird, a crude palm oil update, Indonesia’s tax system, and more.

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Freeport Indonesia stated that the company's production of copper concentrate plunged since the Indonesian government implemented the ban on exports of unprocessed minerals on 12 January 2014. Currently, Freeport only produces to supply Smelting Gresik, Indonesia's first copper smelter and refinery. As such, Freeport only operates at 45 percent of production capacity regarding copper concentrate. According to Freeport Indonesia's spokeswoman Daisy Primayanti, production of copper concentrate fell to 3,150 tons per day.

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Coal is one of the most important commodities for Indonesia in terms of state revenue as it accounts for about 85 percent of the country's total mining revenue. Therefore, when global coal prices fell sharply from 2011 (amid a slowing global economy), Indonesia felt the impact. In a response to lower coal prices, Indonesian miners actually increased coal output thus placing more downward pressure on coal prices and profit margins. Although the coal industry will remain frail for some time to come, long-term prospects are still strong.

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Indonesia's Ministry of Energy and Mineral Resources plans to set royalties for all types of coal at 13.5 percent (of net sales) as part of a revision of Government Regulation No. 9 - 2012 on Tariff and Types of Non-Tax Revenue. Currently, the percentage of royalty depends on the quality of the coal that is extracted as well as the type of permit that is issued to the coal miner. Apart from higher coal royalties, the Indonesian government also proposes a windfall profits tax in case there is a sharp upward price correction.

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Indonesia's Finance Minister Chatib Basri stated that the government of Indonesia is busy preparing three new policies that aim to restore financial stability as well as attract foreign direct investments. These three new policies involve the higher sales tax on imported luxury cars, a revision of Indonesia's negative investment list, and the higher income tax on imported consumption goods. These three new policies are in addition to the policy package that was introduced by the Indonesian government in August 2013.

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Apart from the five tax incentives that I have mentioned in a previous column, the Indonesian government also intends to ease two other tax rules in order to boost investments in Indonesia from 2014 onwards. These are the tax holiday and tax allowance. Relaxation of the tax holiday involves an alteration to the period as well as the size of the investment, and relaxation of procedural difficulties. Relaxation of the tax allowance involves the revision of the number of sectors that are eligible and a relaxation of procedures in the form of tax clearance.

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The government of Indonesia is busy preparing seven tax incentives to boost investment flows in 2014. Investments currently account for approximately 32 percent of the country's gross domestic product (GDP). Only domestic consumption owns a larger stake towards the economy with 55 percent. The regulatory framework related to the seven incentives is expected to be finalized by the end of this year. The incentives consist of five new ones and the relaxation of two older incentives, namely the tax holiday and tax allowance.

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Data released by a department of Indonesia's Ministry of Finance showed that the country's budget deficit amounted to IDR 25.9 trillion (USD $2.64 billion) on 31 May 2013. This figure is equivalent to 16.9 percent of the target that is set in the 2013 State Budget (IDR 153.3 trillion). The IDR 25.9 trillion deficit translates to 0.27 percent of Indonesia's gross domestic product (GDP). The maximum amount of deficit - as stipulated by the State Budget Law of 2013 - that is allowed to be maintained is equivalent to 1.65 percent of GDP.

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In the revised state budget, Indonesia's government has lowered its forecast for tax revenue in 2013. Originally, the government expected to receive IDR 1,193.0 trillion (USD $122.4 billion) but the figure has been tuned down to IDR 1,139.3 trillion (USD $116.9 billion). Minister of Finance Chatib Basri stated that the forecast for tax revenue has been revised down by IDR 55.1 trillion, while the figure for export duties has been raised by IDR 1.4 trillion. Indonesia's tax-to-GDP ratio in 2013 has been changed to 12.11 percent from 12.87 percent.

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The Indonesian government - through its Energy and Mineral Resources Ministry - has stated to provide fiscal incentives to encourage oil and gas exploration in Indonesia. Indonesia, a former OPEC member, has recorded a declining oil production since the 1990s due to a lack of exploration and investments in this sector. To reverse this situation, the government will provide a number of tax exemptions.

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